Author Archives: Orsi Peter

Cuba is the only country in the world that mints two national currencies, a bizarre system that even President Raul Castro acknowledges is hamstringing the island’s socialist economy and must be scrapped. Exactly how to do that is the problem.

Months after Castro made currency unification a centerpiece of a forceful address to parliament, no details have been made public. But a pilot program operating under the radar might hold clues to a way out.

Since the system was created in 1994, most islanders have been paid in national pesos worth 24 to the dollar in exchange houses, while tourists and the Cubans who attend to them receive a much more valuable peso pegged at 1-to-1 with the U.S. greenback. The imbalance means doctors and physicists can make more money driving taxis or renting rooms than they can working in the professions for which they spent years preparing. In his July speech, Castro denounced the setup as having a warping effect on the economy and society in general.Shaking up the dual currency system risks spiking inflation and creating new winners and losers, always dangerous on an island that embraces the goal of egalitarianism. It would also force a change in accounting rules that would eliminate a huge subsidy to state-run enterprises at a time when cash is so short.

Moneda Nacional: Three old pesos = CuP 3.00 = $US o.12

But there are signs that change is coming, and hints at how the value of the currencies might meet in the middle.

Pavel Vidal, a former Cuban Central Bank economist now at Colombia’s Javeriana University, told The Associated Press that a pilot program is being launched with select state businesses operating at a 10-to-1 exchange rate. The businesses are in key sectors such as sugar, hotels and non-agricultural cooperatives. There has been no mention in the official media, but Vidal said it is happening and it’s a good step. “I think it’s great because the elimination of the double currency must be gradual,” he said.

Even incremental change may be tough to pull off, and requires the unraveling of Byzantine accounting practices that effectively allow state companies to purchase dollars at a fraction of what ordinary Cubans pay for them.

While the rate in exchange houses is 24 pesos to 1 convertible peso, or CUC, the Cuban government treats them as equal in official accounts, meaning state entities are getting them at a 1-to-1 subsidized rate. “Whoever is getting these dollars at one-to-one is doing well, and that’s the official sector,” said Rafael Romeu, former president of the U.S.-based Association for the Study of the Cuban Economy.

Despite reforms under Raul Castro, the state still may be too inefficient to quit the subsidy cold-turkey. “They would be basically confronting their budget constraint in a serious way, and I don’t think they are ready to do that,” Romeu said. “They would have to cut a lot of social services.”

The two pesos have been circulating in parallel since 1994, when the loss of billions in Soviet trade and subsidies forced Cuba to reluctantly open the economy to tourism, while trying to insulate most islanders from its capitalist effects.

The drab local one-peso note bears the visage of independence hero Jose Marti, while the brightly colored CUC bill shows an image of the monument that honors him. Holding it up to the light reveals a magnetic strip with the words “Fatherland or death — we will be victorious,” in Spanish.

Other communist countries have experimented with second, hard currencies aimed at foreigners and business dealings, only to drop them. The Soviet Union tried dual currencies in the 1920s and China in the 1980s and 1990s. For Cuba, the idea seemed simple: Canadian and European travelers would spend hard currency at government CUC shops catering almost exclusively to foreigners, while Cubans would keep living a socialist ideal in the other currency. It hasn’t worked out that way. As authorities pulled back on subsidies that once covered almost all of islanders’ housing and food needs, people grew increasingly dependent on the added CUC income — moonlighting in the tourism industry or receiving remittances from relatives abroad.

The result is the upside-down wage structure where low-skill workers like hotel chamber maids earn more from travelers’ tips than professionals. A 53-year-old doctor recently left the medical profession after 25 years because his $25-a-month salary was putting food on the table for just two days a month. He now helps his mother rent rooms to tourists paying in convertible pesos.

“Professional salaries are in a desperate situation,” he said, speaking on condition of anonymity because doctors generally are not authorized to talk to foreign media. “There’s no motivation, and every day they ask more of you.”

Contrast that with Rigoberto Sanchez Beltran, who pulls in about $70-$100 a month in tips for watching over parked cars at a tourist complex in Havana. Getting by is still tough, but he knows the job gives him a leg up on many of his more-educated neighbors. “You get to know the regulars, and they give you a little more,” he said.

Since 2010, Cuba has seen reforms including the legalization of a real estate market, increased private small businesses and creeping decentralization of state enterprise. In July, Castro declared that the dual currency was “one of the most important obstacles to the progress of the nation.” He did not say, however, how the cash-strapped state would manage to pay white-collar workers more.

Cuban officials have long argued that state salaries are effectively much higher than the often-reported average of $20 a month if you factor in things such as free health care, education and monthly food ration cards. But today just about everyone acknowledges that low pay has been the enemy of efficiency, doing little to inspire hard work. Employees often pilfer supplies to resell or barter, or spend work hours on side projects that bring in CUCs.

At stores that still offer cheaper prices in national pesos, goods from soap to mops sell out quickly, snapped up by hoarders or black marketeers. So finding basics such as cooking oil and eggs often entails a trip to a CUC store.

“It’s totally absurd that you get paid in one currency, but in order to live you need to pay with another,” said Margarita Nieves, 69. “Until they fix that, they can’t keep telling people there’s no productivity.”

President Raul Castro declared Thursday that Cuba’s two-year experiment with market reforms is working and has the wind at its back, but said much work remains to breathe life into the sputtering economy.

In a speech devoid of any new policy announcements, the military khaki-clad leader sounded a generally positive tone in discussing the Marxist country’s progress, though he conceded that the island faces a “colossal psychological barrier” in shedding old habits and “concepts of the past.”

“The updating of the Cuban economic model … marches with a sure step and is beginning to delve into questions of greater reach, complexity and depth,” Castro said, according to an official transcript of his remarks before lawmakers at the second of their twice-annual sessions.

The proceedings were closed to foreign journalists, but state television later broadcast tape-delayed highlights.

Cuban economy czar Marino Murillo told the assembly that the government is planning more measures to support and increase the ranks of independent workers and small business owners.

Real estate broker, delivery person, antiques dealer and produce vendor will all be newly legalized private jobs in a country where the government has long dominated the economy and employed nearly the entire workforce.

Economists have said Cuba needs to expand the number of allowable private enterprises, with an emphasis on white-collar work. Real estate has been a particular concern. Cuba legalized the buying and selling of property 12 months ago, but has yet to allow agents to facilitate transactions.

Some 400,000 people now work in the private sector in 180 legally approved job areas, Prensa Latina said. That’s up from 156,000 in late 2010, the onset of Castro’s five-year plan to reform the economy with a dash of free-market activity.

Cuba intends to keep control of key sectors, however, and Castro and other top officials insist the country is not abandoning a half-century of socialism for freewheeling capitalism.

Murillo also said that in the future, state-run businesses including tourism concerns will be paying independent contractors via bank transactions in hard currency.

Meanwhile, lawmakers passed a 2013 budget with a deficit of 3.6 percent of GDP and heard an update on the country’s economy.

The government announced recently that GDP rose 3.1 percent this year, below expectations of 3.4 percent. Growth of 3.7 percent is forecast for 2013, low for a small developing economy, but Castro called it “acceptable in a scenario of continuing global economic crisis.”

Economy Minister Adel Izquierdo said the construction sector is expected to expand 20 percent in the coming year, worker productivity should rise 2.6 percent and the country has a goal of topping 3 million tourist visits for the first time, according to Prensa Latina.

In its first order of business, the assembly unanimously passed a resolution of support for Venezuelan President Hugo Chavez, who earlier this week underwent his fourth cancer-related surgery in the Cuban capital.

Chavez is a key ally of Cuba, and during his presidency Venezuela has sent billions of dollars’ worth of oil to the island on preferential terms.

“At this crucial hour for Venezuela … we will be like always,” Castro said, “together with President Chavez and the Bolivarian Revolution he leads.”

The unicameral parliament will reconvene in February with a new membership following elections and is then expected to name Castro to another five-year term.

The only rig in existence that can drill in deep waters off Cuba is preparing to sail away from the island, officials said Tuesday, after the third exploratory well sunk this year proved nonviable in a blow to government hopes of an oil bonanza.

While production was always years off even in the event of a big discovery, analysts said the Scarabeo-9’s imminent departure means Havana’s dreams of injecting petrodollars into a struggling economy will be on hold indefinitely.

“Bottom line: This chapter is finished. Close the book, put it on the shelf,” said Jorge Pinon, a Latin America oil expert at the University of Texas’ Center for International Energy and Environmental Policy. “But do not discard. Maybe there is a good ending to this story … someday.”

Geological surveys indicate that between 5 billion and 9 billion barrels of oil may lie in deep waters off Cuban shores, but finding it has turned out to be trickier than officials hoped.

The Scarabeo-9, a 380-foot-long (115-meter), semisubmersible behemoth that leases out for prices approaching a half-million dollars a day, steamed all the way from Asia at tremendous cost to arrive in Cuba in January. That was the only way companies could avoid sanctions under Washington’s 50-year-old embargo against Cuba. The Scarabeo is the only rig of its kind built with less than 10 percent American parts — an extreme rarity in an industry where U.S. technologies play a major role.

An exploratory well sunk early this year by Spanish company Repsol turned out to be commercially nonviable. After Repsol declined an option to try again, the Scarabeo passed to a group led by Malaysia’s Petronas, which drilled its own dud. Cuban officials announced Nov. 2 that Venezuela’s PDVSA had also missed the mark.

For this baseball-mad nation, it was strike three. Cuba’s Ministry of Basic Industry, which oversees oil matters, confirmed Tuesday that the rig is on its way out, with no word on when it might return.

“The Scarabeo-9 will leave Cuba soon,” it said in a brief statement emailed to The Associated Press.

It referred questions about the platform’s destination to owner Saipem of Italy. Saipem’s parent company Eni declined to comment, but various reports have had it bound for Africa or Brazil.

Oil’s existence off Cuba is not in doubt. Russian company Zarubezhneft is contracted to use a different rig to drill in shallower waters off Cayo Coco, a key Cuban tourist destination, later this month. But the more promising deposits lie in the deep waters of the west.

The only way to get at them is to bring back the Scarabeo or build an entirely new rig, and the three failed holes plus the ongoing hassle of avoiding sanctions from the U.S. embargo will likely make companies think twice.

Pinon noted that the Repsol and Petronas wells were not dry holes, only that exploiting the oil there was not currently commercially viable due to the structure of the ocean floor and the porosity of the rock.

“If oil continues at over $100 and if the industry continues to learn and develop new technologies, they could probably come back to Cuba … and go for a second round,” he said.

Cuban drilling in the Gulf of Mexico had raised fears in the United States that a big spill could slick U.S. shores from the Keys to the Carolinas. It also attracted heated criticism from anti-Castro exiles in Florida’s Cuban-American community.

“The (U.S.) administration must finally wake up and see the truth that an oil rich Castro regime is not in our interests,” Florida Rep. Ileana Ros-Lehtinen said in a recent statement.

Some cited Cuban oil exploration to argue for strengthening the embargo, which bans U.S. companies from doing business with Cuba and threatens sanctions against foreign firms if they don’t play by its rules. Others said it demonstrated the opposite: a need to ease the embargo so U.S. companies could more smoothly participate in disaster response to any spill.

Cuba has long campaigned for an end to the embargo, which remains in place despite 21 consecutive U.N. votes against it — most recently on Tuesday when the world’s nations voted 188-3 to condemn the sanctions.

HAVANA (AP) — Cuba’s economy czar said Monday that plans are in place to begin an experimental phase of non-state cooperatives in sectors ranging from food services to transportation by the end of the year.

While cooperative farming has already begun, Cubans have been waiting for regulations allowing them to form worker-owned co-ops in other sectors. The pilot program announced by Marino Murillo in a session of Cuba’s parliament will include 222 cooperatives.

The creation of midsize cooperatives is a long-promised lynchpin of President Raul Castro’s economic reforms, and Cuba’s economy czar promised state support to jump-start the pilot program. Murillo said some will be converted state-run enterprises, and co-ops will be given preference over private single-owner businesses.

“For these cooperatives and the non-state entities, in the coming year $100 million is being budgeted which is the financing necessary so they can be assured production, because if we create them and there is no financing, they won’t work,” Murillo told lawmakers in one of the parliament’s twice-a-year sessions.

He also reiterated that Cuba must also make its state-run enterprises more efficient and productive, since they will continue to dominate.

“The most important part of our economy will be the socialist state enterprise,” Murillo said. “Don’t think that all of a sudden the private-sector workers will generate $40 billion, $50 billion in GDP.”

Castro’s five-year plan to overhaul the economy has already legalized the sale of homes and cars and swelled the ranks of private-sector entrepreneurs by a quarter-million since 2010. Nearly all are small mom-and-pop shops, however, the likes of restaurants, cell-phone repair shops and jewelers.

Cuba insists that the reforms are not are not a wholesale embrace of capitalism but rather an “updating” of the nation’s socialist model, and most key sectors will remain under government control.

Other than a statute on taxation, no new laws were announced Monday. Foreign journalists were not allowed access to the session of the National Assembly, but state television aired Murillo’s speech in the evening. For islanders wondering whether the assembly would take action on long-promised reform of travel restrictions, it was another disappointment.

Early this year, Parliament President Ricardo Alarcon said in an interview that a “radical and profound” change to the rules, which keep most Cubans from leaving the country, was imminent.

There has been no word since then about scrapping the much-loathed “tarjeta blanca,” or “white card,” which islanders must apply for to travel abroad. Speaking to parliament, Castro repeated that the government still intends to reform the migratory rules, but did not say when it might happen. “It has not been relegated. On the contrary,” Castro said. “We have continued working toward its gradual relaxation, taking into account the associated side-effects.”

The pace of Castro’s reforms has slowed this year with no blockbuster changes announced since December, leading many economists to question whether Cuba can meet its own targets for reducing bloated state payrolls by 1 million workers, and shifting 40 percent of the economy into non-state control.

Last week, the island’s burgeoning small business class was dealt a blow with the low-key announcement of new, stiff tariffs on imported goods. The entrepreneurs say that without access to wholesale markets, the only way they can supply their businesses is through “mules” who transit between Cuba and places such as Miami, Ecuador and Panama with their bags stuffed with food, spices, clothing, electronics, diapers and other items tough to come by on the island.

On Monday, Cuban state media published an article seeking to quiet what it called the “numerous comments and anxieties” about the new customs duties. It made no mention of the small businesses, however, and insisted that the measures were necessary because excess baggage is slowing down service at the airport, making it resemble a cargo terminal.

Murillo said Monday that Cuba is studying how to establish wholesale markets, but did not announce specific plans.

Economists say it’s clear that Castro’s changes are here to stay, but change is happening slowly and measures to stimulate the private sector come with other decisions throwing up obstacles in entrepreneurs’ paths. “It’s very confusing because they are really sending mixed signals,” said Sergio Diaz-Briquets, a Cuba analyst based in the Washington area.

Castro also reiterated that the government will not be pressured into hurrying. “On a national level and above all in the exterior, there has been no lack of appeals, not always well-intentioned, to accelerate the pace of transformation,” Castro said. “It is a matter of such scope upon which the country’s socialist and independent future depends, that there will never be space for the siren calls that call us to immediately dismantle socialism and impose so-called shock therapies on the people.”

Cuba celebrates Revolution Day on Thursday. The date is sometimes used to make major announcements, though less so in recent years since Castro replaced his older brother Fidel as president.